direct-mutual-funds-all questions answered what are direct mutual funds

What is Direct Mutual Funds? What’s the difference between Direct and Regular Mutual Funds?Does Direct Fund is always good for Investment than Regular Funds? That’s one of most frequent question we have received recently. Here is everything you need to know.

In case you are new to Mutual Fund Investment world, check out this complete guide to investing in mutual funds for beginners in India. 

In this article:

  • What are Direct Mutual Funds?
  • Conflict of Interest (Confusion in the users’ mind: Direct vs Regular).
  • Cost of Investing in Direct Mutual Funds.
  • Direct Mutual Funds are not for you if…
  • Sqrrl is now direct because we’re on your side.

difference between direct and regular mutual funds

What are Direct Mutual Funds?

Starting Jan 1, 2013, after a SEBI purview every Mutual Fund in India comes in two plan– a ‘Regular Plan’ and ‘Direct Plan’. These are two exact same scheme and are run by the same fund managers. The mutual funds invest in the same stocks and bonds, but with one very crucial difference:

The Regular Plan Costs you more!

Under a Regular Mutual Fund Plan, the Asset Management Company (AMC) pays a small percentage of commission, every quarter. This is a small commission that is paid under the expense ratio of the fund and can range anywhere between 0.1-1% of your investment amount.

Under a Direct Mutual Fund Plan, there are no commissions paid to anyone. Instead, this difference of the commission paid to the broker (0.1-1%) will be added back to your investment in the mutual fund, resulting in a higher return on investment.

difference between direct and regular mutual funds

Difference Between Direct and Regular Mutual Funds: What, why & how?

If you’re reading this, chances are you are a beginner investor or have invested in a mutual fund without knowing the difference between direct & regular mutual funds. At these stages, we believe you have three very important questions in your mind.

  1. How do I know if I have a direct or regular plan?
  2. I was told in the long run commissions don’t matter and so there’s a nominal difference between regular and direct funds, is it true?
  3. How do I buy direct funds, or how do I switch my current investments into direct.

We’ll try and help you get answers to all of these questions in the simplest way possible.

Let’s begin:

1. How do I know if I have a direct or regular plan?

The easiest way to know this is to check the monthly statement that you receive from the mutual fund that you have invested it. The scheme name will either say ‘Regular’ or ‘Direct’, and that will help you figure out whether your investments are in a Regular Mutual Fund or a Direct Mutual Fund. Alternatively, you can also think about how you invested in Mutual Funds. If you invested in your bank, or through an agent that is not charging you anything or offering his advice for free, then you have bought a regular plan. Did your bank/broker/advisor/distributor explicitly tell you about which plan you are opting for? If the answer is no, then you have invested in a regular plan.This means, that there is a commission that is being paid to your broker/distributor from your investment.

Direct and Regular Mutual Funds Guide

2. I was told in the long run commissions don’t matter and so there’s a nominal difference between regular and direct funds, is it true?

This is a confusion that arises in the mind of every investor at a certain point once they become aware of the differences between a Regular Mutual Fund and a Direct Mutual Fund. Your investment advisor or agent might tel you that it doesn’t really matter which plan you invest in since a 0.1-1% fee is nominal enough to not affect you in the long run. Consider this, if you are looking to invest for the next 30 years, putting in a total of Rs 10 lakhs in a Regular Mutual Fund, and expect a nominal return of 8%, your investment could be worth Rs 76 lakhs. However, if you had invested in a Direct Mutual Fund, the same amount, plus the added 1% commission that you had paid in the Regular Mutual Fund, your investment could be worth Rs 1 crore in the same period. In simpler terms, while the nominal fee might not make much of a difference in the short run, this could definitely have a huge impact in the longer run, in this case about 1/4th of your final investment amount. The graph below would better help you understand how this might turn out in the longer run.

3. How do I buy direct funds, or how do I switch my current investments into direct?

There are several ways which you can go about in order to buy a Direct Mutual Fund Plan. You can register manually at the AMC’s website, do your KYC for each AMC that you want to buy a Direct Mutual Fund from and then continue investing. However, there are several online investment advisors that offer the convenience of one-time registration & advice you on purchasing the best Direct Mutual Fund for yourself. However, while some of these platforms are free to use, some have different types of subscription plans or one-time charges.

Cost of Investing in Direct Mutual Funds.Whether it’s hidden distribution fee or the fee that advisors charge, they affect your pocket eventually. It goes without saying that a high commision or a fee model eats into your returns.

Generally, investors neglect the fees aspect as the differences between the best and the worst ones are just 1-2% per annum. However, one shouldn’t neglect the power of compounding. Even a difference of 1% in fee adds up to a good 30% in the long term.

That’s why it’s a good idea to understand the different types of fees and commission. You can go and read our detailed guide on the different types of fees & commissions to understand this in a better manner.

who should not invest in direct mutual funds - difference between direct and regular mutual funds

Who should not invest in direct mutual funds?

Now when we have captured the benefits of the regular plan, let us share, with our readers, who should not invest in direct mutual funds:

1. Investors with limited knowledge about the capital market – We believe investors who do not have any prior experience regarding investments, particularly in the capital market, should typically opt for the regular plan so that they get proper to advise with regards to investments.

2. Investors who are not aware of technicalities such as rebalancing – As highlighted in the previous section, it is important that portfolio reflect conviction at all times with respect to risk appetite, horizon, and the likes. Thus, if an investor is not a pro at portfolio rebalancing, the regular plan is better so that the advisor can rebalance the portfolio and book profits at regular interval as it may deem fit for the investor.

3. Investors who cannot track and monitor portfolio regularly – Investing through direct plan requires continuous monitoring. Should there be a situation that an investor is unable to track the portfolio, it is advisable that he/she opts for the regular plan so that the advisor can track the portfolio and performance regularly on his/her behalf.

Thus, to conclude, we believe while many individuals believe direct plan offers better returns, it may not suit everyone and a rational decision is important depending on the investor’s understanding of the investments.

Direct Mutual Funds are not for you if…

Since late January 2018 when the market turned volatile with double-digit correction witnessed in a couple of months, investors (mostly direct investors) are panicking. The bull run that saw a huge number of investors flow in the market by way of direct mutual funds have started speaking regarding stopping investments or shifting to a more organised regular plan.

Does this mean Direct Fund is good always?

The answer is Not Always.

While in a direct plan, an investor saves on the commission that grows to provide significant profit but in times when the market is volatile, these investors tend to lose more money due to lack of expertise which is otherwise brought to the table by a fund advisor.

We believe an investor should opt for regular plan due to the following:

1. Recommendation for investment – While it is true that direct fund provides better returns, a well-selected fund (even if it is the regular plan) can fetch superior returns than direct plan. Thus, what remains crucial is advice from experts.

2. Other services such as review and rebalancing – depending on the investment horizon, goal, and risk appetite it is important that the portfolio is rebalanced at every interval. This ensures that the investment completely reflects the conviction of the investor and suits his/her appetite. This rebalancing is offered by the advisor in a strategic manner to ensure that good performing funds are not left behind.

3. Additional services including facilities such as facilitating investment, redemption, tracking, updating account etc – A small fees not only provide you with the benefit of tracking and advisory but also make things simpler with regards to the regulations and compliance. It undoubtedly helps you save time and effort.


Understand the difference between direct and regular mutual funds to figure why we are going direct

Sqrrl going Direct, because we listened to you!

These are our guiding principles, and we remain committed to abide by them.

“We vow to never compromise your interest for commercial considerations. YOUR needs are what guide us.”

Guided by this principle, we have always taken decisions in your best interest. When we started, we decided to offer probably the best and the simplest product for beginner investors – regular mutual funds. In fact, for small investors, there are no significant differences between direct and regular mutual fund.

However, with you, we have also evolved. We have seen your investment with us grow, making the impact of zero commission in the direct funds substantial in the long run.

That’s why we are giving up the commission and taking the route that’s in your best interest – direct mutual fund.

First, direct plans have lower expense ratio as fund houses don’t have to pay commission to us or any other distributors. That’s why given all other factors are the same, the direct plan will have a better return than a regular plan. While the difference is generally 0.5%-1%, in the long term this difference could add up to a good 30%.

Second, as we don’t earn any commission from fund houses, now, more than ever, we are betting on your success. By giving up our commission from fund houses, we want to assure you that we are in this together!

With the direct plan, you earn better, and we cheer for your prosperity, as always 🙂


If you still have questions, check out our blog on the frequently asked question about Direct Mutual funds.

Our app is designed to help all people invest, regardless of whether you have an intricate knowledge of Best Direct Mutual Funds or not. Setting up a SIP, or setting up a future investment like planning a vacation, Retirement Fund, etc. can be done with Sqrrl in minutes. And don’t you just take our word for it, we’ve got little demos of the app here, go through them and tell us what you think.

You can click here to download our app.



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